EUR/USD Price Forecast – US Greenback Gains Lost Ground Post US Election Results

EUR/USD pair saw a sharp bearish slide since the markets digested the results of the midterms as the outcome of split congress was well within market expectation and priced into the pair’s momentum resulting in bull momentum running out of steam shortly after the final outcome was announced. As expected, Republicans kept the Senate and Democrats took the House. However from here, analysts are of opinion that the House is likely to pressure Trump with subpoenas (taxes, commercial dealings) to which the President has pledged to fight back with investigations against leakers. While Euro zone saw some positive macro data it had little to no impact on price action as yesterday’s momentum was largely dominated by US Election results and the pair saw significant gains. However US Greenback gained strength in broad market across late American and Asian market hours recovering majority of ground lost against the common currency yesterday.

EURO’s Bullish Bias Remains Intact Despite US Greenback’s Recovery

As of writing this article, the EURUSD pair is trading near flat at 1.1433 up by 0.05% on the day. Markets will now get set for the FOMC. However, the meeting is unlikely an immediate market mover.  The fed funds target rate (FFTR) is expected to be left unchanged and instead, markets have priced in a December hike. Investors are now focused on forward guidance with details on outlook for 2019. The dollar has suffered some downside volatility in anticipation that the Fed will soon arrive at their neutral target of 3% and will, therefore, terminate their current path of tightening in 2020. Further signals that the Fed is coming to the end of its tightening path could weigh on the greenback and lift EUR/USD. However, no material changes to the statement leaves the market expecting the Fed to be on autopilot, and thus reprises toward the dots which could be a bullish outcome for the dollar and weigh on EUR/USD that is already finding tough resistance at the 1.15 handle.

There is also a chance for greenback to turn dovish if the policy statement shows increased sensitivity to the recent drop in the stock markets. When looking from technical perspective, The EUR/USD one-month 25 delta risk reversals (EUR1MRR) have risen to -0.575 – the highest level since Aug. 1. The data indicates that the demand or the implied volatility premium for the cheap out of the money EUR is currently at its lowest in over three months. The falling demand for the EUR bearish bets likely indicates that investors are expecting a stronger recovery rally in the EUR/USD. While USD regained some ground a look at 4 hour and daily chart shows that bullish momentum remains intact which is evident from the fact that price continues to move well above 1.14 handle.